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Advertising Fraud Strikes Daily Planet

Tuesday July 15, 2003

Scam artists placed two fraudulent advertisements in the Berkeley Daily Planet in late June and early July in an apparent bid to bilk readers out of money or personal financial information, said Daily Planet publisher Michael O’Malley. 

The ads used the names of two legitimate lending companies—E-LOAN, based in Dublin, Calif., and Nexity Bank, based in Birmingham, Ala.— but provided false phone numbers. 

The appearance of the ads has raised questions about the Daily Planet’s advertising policies and concerns about what might happen to readers who provided a credit card number, a social security number or other sensitive information to the alleged con artists. 

“Whatever private financial information they gave to people is probably either being used or sold to a thief,” said Gail Hillebrand, senior attorney with the Consumers Union, which publishes Consumer Reports. 

Hillebrand said the paper should have known something was awry when the advertisers, identifying themselves as Greg Lee in the case of the false Nexity ad and Peter Grange in the case of the fake E-LOAN ad, used credit cards with other peoples’ names to buy the advertising space.  

O’Malley, who later discovered that the ads had been purchased with stolen credit card numbers, apologized for the fraudulent ads. But the publisher, who bought the paper from Big Foot Media in December, a month after it closed in the face of poor advertising revenue, said it would have been difficult to detect the fraud given that the alleged scam artists used the names of legitimate companies.  

O’Malley, who owns the paper with his wife, executive editor Becky O’Malley, also addressed concerns that the incident will shake reader or advertiser confidence in the newly reborn paper, which began publication in April. 

The decision to publish a story on the fraud, O’Malley said, “certainly indicates that we take this seriously.” He also pledged that the newspaper will be more vigilant in checking the legitimacy of the ads it runs in the future. 

“We’re going to be a lot more suspicious,” O’Malley said. 

The fake E-LOAN ad ran from June 13 to July 8 in the Daily Planet and the false Nexity ad ran from June 27 to July 8. Both were large ads that appeared in the classified section in the back of the tabloid-style paper. The Daily Planet notified the Berkeley Police Department and pulled the ads last week when it discovered the fraud, which cost the paper $1,530 in advertising space. 

O’Malley said he discovered last week that a similar fraudulent ad ran last fall when the Daily Planet was under different ownership. 

Cindy Russo, senior vice president of operations for Nexity Bank, said fraudulent ads using the bank’s name have appeared in a series of small newspapers in 10 to 15 states across the country, including California, Florida, Tennessee and Virginia since June. 

“These guys are well-organized,” she said. 

Russo said the con artists have stripped the company’s logo from its Web site and used her name and that of Nexity CEO Greg Lee to place the fraudulent pitches. She said Nexity has traced the two toll-free numbers listed in the fake ads to a pair of cell phones in Canada but that the two phone companies which operate the phones, Sprint Canada and Bell Canada, have declined to shut them off without a court order. 

Nexity, in the meantime, has contacted the FBI and Royal Canadian Police, among other agencies, but have seen little progress in the case. 

“Law enforcement up there is not real helpful,” she said, referring to Canadian authorities. “No one is being physically hurt, so it’s off the radar screen.” 

The FBI and Royal Canadian Police did not return calls for comment. But Rolando Berrelez, assistant director for the Federal Trade Commission’s midwest regional office in Chicago, Illinois, said con artists often set up shop in Canada or other foreign countries to evade law enforcement and cut costs. 

Russo said the con artists have been promising loans to callers, requesting two monthly payments through the Western Union courier company and then disappearing. She said she did not have any knowledge of widespread identity theft by the con artists, but noted that they have been paying for newspaper ads with stolen credit card information. 

The Daily Planet discovered that the Nexity ad in its paper was fraudulent when Ronda Gieryn, a business manager from Waltham, Mass., called last week to report that she had received a credit card bill for $2,400 worth of advertising services that she had not requested, O’Malley said. 

The fake E-LOAN ad was also purchased with a stolen credit card, O’Malley said. 

E-LOAN spokesperson Tiffany Kelley declined to discuss the case and E-LOAN attorneys did not return calls for comment. 

“This matter is under investigation and therefore we can’t comment on it,” Kelley said. 

One of the two numbers listed in the fake E-LOAN ad had a Canadian area code, from the Ottawa area, suggesting another scam based north of the border. 

Calls to the fake E-LOAN numbers listed on the Daily Planet ad turned up a voice mail message telling callers they had reached “E-LOANS” and asking them to leave a name and phone number. 

A call to one of the fake numbers listed on the Nexity Bank ad was answered by a man claiming to be Greg Lee — matching the name of Nexity’s actual CEO. But the man said he was a “third party consultant” who would accept loan applications and forward them to Nexity and other financial institutions. He said he would require an applicant’s name, address, social security number and other basic information to procure a loan. 

Jim Ewart, legal counsel for the California Newspaper Publishers Association, said newspapers fall victim to all sorts of false advertising. While they face no legal liability, he said, newspapers can face a blow to their reputations. 

“They find themselves in the worst possible position because they want to protect their readers and their credibility,” he said. 

The Daily Planet is not the only local newspaper to run fake ads using the names of real financial institutions. Advertising account representative Fernando Laughlin of the East Bay Express said he ran a fraudulent Bank One ad for four weeks in May. Joyce Garmon, who heads the classified advertising department at the Oakland Tribune added that her newspaper ran a fraudulent Capitol One pitch several months ago. 

“It’s pretty prevalent,” said Garmon, noting that she has come across the scam many times in her 20 years in the newspaper business. 

Laughlin said the Express has begun asking for photocopies of the front and back of driver’s licenses and credit cards before processing a sale. The system, he said, prevented the weekly newspaper from running a Nexity Bank ad in June. 

But Laughlin said one problem is that sales representatives, working on commission, find it difficult to turn down lucrative ads proffered by scam artists who send mass faxes attempting to place costly, long-term ads. 

“Any sales rep who gets a fax like that is doing backflips,” he said. 

Steve Blackledge, legislative director of the California Public Interest Group said his organization’s research shows that the average victim of identity theft spends $1,000 and 175 hours clearing his name. 

“Newspapers need to make sure they are running advertisements from legitimate companies,” he said. 

Hillebrand said any readers who fell victim to the fake ads should change bank accounts if they provided account numbers, obtain a credit report to see if their credit cards have been misused and place a fraud alert on their credit reports. With a fraud alert in place, readers will receive a telephone call anytime there are attempts to open new lines of credit using their personal information.